“We think Toronto is one of the most robust high-density markets in the world.”

Mark Mandelbaum

Principal, Lanterra Developments

Ask the leading condominium developers in the Greater Toronto Area how they’re feeling about the 2014 highrise market, and you’ll hear “confident,” “optimistic” and “bullish.”

Indeed, the mood was positive when Jim Ritchie, senior vice-president sales and marketing for Tridel Corp.; Riz Dhanji, vice-president of sales and marketing for Canderel Residential Inc.; Jared Menkes, development manager for Menkes Developments; CentreCourt Developments president Andrew Hoffman; and Lanterra Developments principal Mark Mandelbaum — along with George Carras, president of RealNet Canada Inc. market research — gathered for a round table discussion at the Star. Danny Roth, principal of Brandon Communications, moderated.

All five developers have launched, or are planning to launch, major projects in the first half of 2014 — underscoring their confidence in the market. Their optimism is tempered by caution and discipline, however, and they stress it is industry discipline that ensures the market’s continued sustainability.

What happened in 2013

Carras, whose firm RealNet provides background, analysis and insights on the real estate market, said the GTA is one of the most critical property markets in Canada. Its condo market, he noted, is increasingly relied upon to provide new housing. After record sales in 2011, the market “dialed back” in 2012 and 2013 (about 15,000 to 17,000 sales) and decision-making was tighter and more rigorous.

“And I think it (the market) has gotten much stronger as a result,” said Carras.

“There’s always a cycle and that’s clearly the case in the condo market,” said Mandelbaum, “but it looks like we’re edging up from a modest cyclical adjustment (in 2013). It’s not unwelcome, it’s a safety valve.

“We think Toronto is one of the most robust high-density markets in the world. You have to appreciate the fact that there are always going to be cycles and, if you prepare for it, it’s not bad.”

Why condos are important to the GTA

With government policy mandating that development “goes up, not out,” a trend toward greater urbanization, a widening gap between lowrise and highrise prices, and the influx of 80,000 new immigrants into the GTA, the condo market is more relevant than ever, the panelists believed.

Hoffman pointed out the importance of the condo sector to the rental market since no new rental housing has been built within the GTA in the last 35 years — without continued condo construction, a serious shortage of rental units would be felt.

Condos are also needed to allow the region to maintain an affordable home ownership option for people, said Carras, who noted the price spread is $220,000 between lowrise and highrise homes.

“And we are the only affordable option,” added Ritchie. He said demographics indicate that 59 per cent of households in the City of Toronto have two people or less, “so it’s a perfect marriage for what we build.”

“There are not many large cities where you can live downtown and (afford to) own your home,” pointed out Menkes.

Factors in successful condo projects

The panelists agreed that location, brand, product and price are the keys to creating successful condominium projects. As well, connection to transit has become a high priority for buyers.

“It’s a desire of people to avoid gridlock and they are valuing their time more than (having) a yard,” said Hoffman. “The trend toward urbanization will continue.”

The panelists agreed that connection — that is, connection to subways and transit, connections to amenities — is important with buyers who want to work, live, play and learn all within close vicinity.

Current buyers are extremely sophisticated and educated, the panelists agreed, and know how to read and understand market reports — particularly from uninformed sources (such as those from the U.S. who don’t understand the Canadian market) — and filter negative reports.

“Consumers today understand that, when they buy from a large developer, they know what they’ll be getting,” said Dhanji.

A builder’s brand is “crucial,” said Mandelbaum. “It’s recognized in the marketplace by consumers and puts a very serious responsibility on us as developers to maintain that standard . . . when it comes to the sophistication of the consumer, there is a quantum difference from 10 years ago and I think it’s something that’s been overlooked by the media and overlooked by banks.”

About 90 per cent of condo sales are now made through third-party agents, said Ritchie, with most buyers choosing to be represented by professional agents who have an in-depth expertise in dealing with the increasingly complex condominium industry.

“Purchasers need that confidence when somebody who is their agent tells them ‘this is a great unit, this is a great price, you’ll do well.’ And these agents don’t want their clients to lose money in a deal,” said Mandelbaum.

Who the buyers are

Investors will continue to play an important role in the GTA condominium market, yet definitive statistics are not available to quantify the sales made to investors. The developers agreed that no one owns more than one or two units per building but may own units in several buildings.

With end-user buyers (those who live in their units), Ritchie said the average age is 42 years old. The largest segment of the market is still first-time buyers, who tend to buy units in the lower-end, $300,000 range. A growing segment is the single female buyer, who represents about a third of Tridel buyers. And the baby boomer buyer is the dominant force in the luxury condo market.

Ritchie cautioned against pigeonholing buyers with generic description, however: “There is no one condo buyer.”

Headwinds in the condo market

A negative for the condo market in 2014 is the Monday, Oct. 27 municipal election. Within months, the elections is expected to bring a slowdown in approvals at city hall as politicians begin campaigning and decisions are deferred until the newly elected council is in power. With development fees set to rise, developers are also pushing to get approvals through.

“We are going to see a very significant slowdown in product approvals starting in spring 2014,” said Mandelbaum.

The developers said government-imposed regulations have gone far enough to moderate the market and more could hurt the industry. In July 2012, the Ottawa tightened mortgages rules, which included reducing the maximum amortization period for a government-insured mortgage from 30 to 25 years, and dropping the upper limit that Canadians could borrow against their home equity from 85 per cent to 80 per cent.

“One of the biggest challenges in the marketplace has been the endless chatter on what will happen,” said Ritchie. “Our industry does have discipline and I believe this has been demonstrated for decades.” With slower sales in 2011 and 2012, developers slowed the number of new projects and the market was able to absorb the inventory.

Outlook for 2014 and beyond

“Toronto is a great city with great trend lines. The urbanization trend will only increase and make vibrancy that much greater,” said Hoffman. “Transportation is huge issue that’s driving people to live and work downtown.”

“We are going to continue to be prudent, but we believe there is a bit of pent-up demand,” said Ritchie, whose company has condominium projects in six different GTA locations catering to all segments of the market.

“I think it’s going to be an exciting year,” said Dhanji. “People have been waiting two years for a market correction and they realize it’s not going to happen. There is pent-up demand and I think everyone will be pleasantly surprised by the numbers at the end of the year.”

Menkes said his company is confident about the year ahead, with “location and brand” the two main themes that draw buyers to his company’s buildings.

“We believe there’s been an improvement in consumer confidence, and the banks will retain discipline, which is a good thing, and the industry will retain caution which is a good thing,” said Mandelbaum. “There have been fewer launches in recent years and, ultimately, it’s consumer confidence that drives the boat. It doesn’t matter what it costs today. The only thing they care about is whether it’s going to be worth more tomorrow. That’s such an important concept in what we do and I believe there is a pent-up demand.”

Market status of major projects by the round-table developers:

Harbour Plaza Residences

Developer: Menkes Developments Ltd.

Location: York St. & Harbour St. (90 Harbour St.)

Phases: Phase One – East Tower; Phase Two – West Tower

Selling status: Registration phase

Development size: 1,315 suites between two towers. East Tower: 62 storeys; West Tower: 65 storeys.